Condo and Loft Homebuyer's Guide

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If you're looking for amenities, attractive prices and a low-maintenance lifestyle in the city, a condo or loft may be right for you.

A condo is generally an individual unit in a larger building or structure that was built as housing. A typical condo complex may look like an apartment building, but each unit is owned, not rented. A homeowners association (HOA) governs the condo community, collects dues and maintains the common areas.

A loft is a living space carved out of a building that wasn't built as a living unit. Many lofts are built out of converted warehouses or old factory buildings in a city's urban center, making them an appealing alternative for professionals who work downtown. Lofts typically do not have interior walls, have more open space and higher ceilings than other homes, and require minimal maintenance. Loft developers will sell them as move-in-ready units or as empty "shells" for buyers interested in designing the space themselves. An HOA also governs the loft building.

“There’s an interesting phenomenon happening today in urban centers. People are moving back into the cities,” says Tim Vasko, founder and chairman of the luxury condominium and property search website RealEstock.com. “They’re realizing it’s much more cost-effective to live and work in the city center.”

If you're considering buying a condo or loft, follow these six steps to guide you through the process.

Step 1: Weigh the Pros and Cons

The condo lifestyle can be an attractive choice for a variety of buyers, such as families who like to be near parks and schools or the empty-nester looking to downsize, says Roy E. Carroll II, owner of The Carroll Companies, a Greensboro, N.C.-based real estate development corporation.

“It can be a bigger process to get approval for renovations, and sometimes personal hobbies and entertaining may be curtailed, depending on building rules,” says Tracie Hamersly, senior vice president of the Manhattan-based Citi Habitats, a real estate company specializing in lofts and condo spaces.

Step 2: Find a Real Estate Agent Who Knows the Market

A knowledgeable real estate agent can help in your property search and is especially key if you’re a first-time buyer, says Michael Vesole, manager of the Mike Vesole Group @Properties, a Chicago-based real estate group.

“Most people who are buying condos are entry-level buyers,” he says. “It’s important for these buyers to find someone who has a lot of experience with condos and lofts and who can explain the process well. Transactions usually go sour when the buyer isn’t aware of how the process works.”

Tips for finding an agent:

Look at the free sales publications on newsstands to identify agents who have condos listed, because they’ll understand the process.

Go directly to the property you’re interested in and talk to the agent at the sales office. “Because they’re a representative of the builder or developer, this will give you an idea of the 'personality' of the developer,” says Tim Vasko of RealEstock.com. “If you like the agents and the vibe of the sales center, then you’ve at least got an idea you might like the way the developer does business.”

Get referrals and interview at least three agents. Find one you can trust and will enjoy doing business with.

Step 3: Know What to Look For

Be a smart shopper. Here's what to ask once you’ve narrowed your search, says Amanda Sawyer, a Prudential Douglas Elliman broker who specializes in the hot Manhattan condo market:

How many units are owner-occupied? “If a large percentage are owned by investors as second homes or rented out, it can have a negative effect on the value of your property,” she says.

How is the building maintained? “When you buy a condo, you own the common areas,” she says. “Badly maintained common areas can be a red flag that perhaps the homeowners association is not running the building as well as it should.”

Is there an application process? Sawyer says in Manhattan this step is becoming more common because it protects the owners by making sure others are financially qualified to live in the building.

Who is the developer/builder? Check reputations and other developments. “Remember, you are in essence buying a building,” she says.

Step 4: Get to Know the HOA

The homeowners association, or HOA, marks the biggest difference between a single-family home and a condo or loft home.

"An HOA is the entity established by the project developer that is turned over to the condo-unit buyers once buyers have closed on a pre-established number of units, usually around 50 percent,” says Roy E. Carroll II of The Carroll Companies. “The HOA in most condo situations is responsible for collecting dues and maintaining the common areas.”

In addition to these financial responsibilities, the HOA can change the rules governing the property, like the size of the dog you can have and the operating hours of the pool or fitness center. Many HOAs are also responsible for certain shared utility costs like water or heat. Sound like a lot of power? It is, Carroll says.

“With the HOA having a fairly wide scope of power and responsibility, it is important to attend the HOA meetings,” Carroll says.

Before you buy a condo or loft and join the HOA:

Find out what the monthly dues are and if an automatic debit system is available;

Ask for a copy of the HOA's covenants, conditions and restrictions (CC&Rs) as these rules can limit improvements or alterations you can make to how many pets you can have;

Ask for a copy of the HOA bylaws, which dictate in fine detail how the association should operate;

Ask about any special assessments that were made in the past three years;

Meet the HOA president and ask any questions you may have about the community;

Find out when and where meetings are held;

Ask for a copy of the latest budget and meeting minutes. Review them to see how dues are being spent.

Read this article for more information on HOAs.

Step 5: Consider Insurance

With a single-family property, a homeowner must insure the building, its contents and even the land and landscaping. With condos and lofts, the HOA collects monthly dues from members that cover the cost of insuring the building.

Even though the building is insured, condo and loft owners should buy policies to cover their belongings inside the building. “It’s highly recommended that buyers also purchase a separate homeowner policy to insure the contents of the home, similar to renter’s insurance,” says Leslie Williamson, executive vice president of The Condo Store, a nationwide real estate service specializing in sales of condos and lofts.

Read this article for more about condo insurance.

Step 6: Do the Research

Before you sign on the dotted line, make sure you find out the nitty-gritty on the community you're considering. Dig into the HOA's books, ask neighbors about their experiences and talk to the real estate agent on-site to see if it's a good fit for you.

Don't forget to research the community's management system. Is it managed by a small, local firm? Or is it a large company that manages several properties in the city or region? What is the grievance procedure? Who is the on-site manager and how well does he or she respond to day-to-day issues?

"You really want to know how the community is being managed," says Money Magazine contributing writer Jill Elizabeth Westfall. "The average resident you approach in the hallway, lobby or parking lot should know who is running the community and should feel good about how it's being managed."

The key to purchasing a condo and being happy about it is research, RealEstock's Tim Vasko says.

"Buying today is a tricky business. You could be sitting on the best investment of your life or the worst," he says. "Dig into the aspects of the property, ask questions online and offline, and you'll be doing yourself a favor and protecting your investment and the place you choose for your lifestyle."